New: Of Buildings, Statues, Art, and Sperm: The Right to Destroy and the Duty to Preserve

By Gregory S. Alexander

Markets require some sort of property rights, including transferability. Without transferable property rights market relations cannot get off the ground. Moreover, markets assume that these rights refer to some resource, some thing that is the object of the market relationship. In this sense property is, as some commentators recently have argued, about things. Saying that property is about things doesn’t tell us very much, though. It tells us nothing about the sorts of things that are the object of property rights, and it gives no indication whether property rights are uniform and fixed regardless of the sort of thing involved. Things are not all of a piece; pencils are not Picassos. There is no good reason to think that the law of property should treat all things alike. Modularity can take us only so far. Property law does and should make distinctions regarding the rights that owners have or don’t have and the extent of those rights depending upon the sorts of things they own. This ...

New: Kompetenz-Kompetenz and Its Negative Effect — A Comparative View

By John J. Barceló

The paper deals with the “negative-effect”-of-Kompetenz-Kompetenz doctrine in some of the major arbitration venues, France, Germany, Switzerland, the U.S., England and Canada (Quebec). The negative effect doctrine refers to the circumstances under which a national court, before which a case is pending, will refrain (or not) from a full review of whether an alleged arbitration agreement (requiring arbitration of the parties’ dispute) exists as between the parties, is valid, and covers the dispute — in deference to allowing the arbitrators to decide those issues in the first instance. Although national jurisdictions universally accept the “positive” Kompetenz-Kompetenz doctrine — under which arbitrators are authorized to decide their own jurisdiction, although not with finality — they follow dramatically different approaches to the “negative-effect” issue. After canvassing and analyzing how the major jurisdictions just mentioned approach the negative-effect doctrine, the paper ...

REVISION: Mitigation Matters

By John H. Blume

Mitigation matters. It works. It literally saves lives every day, often in cases in which a death sentence seems a foregone conclusion. But mitigation matters — it works — only if the capital defense team is committed both to conducting a comprehensive investigation of the client’s life and to developing and integrating the results of the investigation into a compelling, credible narrative for life. This commitment to uncovering and telling the client’s true story must be complete and unwavering. When it is, life sentences follow. When it is not, undeserved death sentences are imposed.

New: Balanced Judicial Realism in the Service of Justice: Judge Richard D. Cudahy

By Cynthia Grant Bowman

There is a quiet irony to be found in scholarly writings about the judiciary, which often center around high-profile jurists selected as the “great” judges. But there are great judges who do not receive or even want such widespread recognition, and who do not discuss their philosophy of judging—they simply focus on the job in front of them. Judges who operate with humility can often be very quiet about their legacies—brushing the issue off, as if uncomfortable with the attention. Anyone who knew Judge Richard D. Cudahy of the United States Court of Appeals for the Seventh Circuit will recognize this description. In some ways, that kind of reticence makes writing about his jurisprudence more than a little challenging. But in other ways, it invites us to examine what this “judges’ judge” exemplified as he worked at his craft. In reflecting on this, perhaps we can understand that craft more deeply.

REVISION: How Constitutional Norms Break Down

By Josh Chafetz

From the moment Donald Trump was elected President, critics have anguished over a breakdown in constitutional norms. History demonstrates, however, that constitutional norms are perpetually in flux. The principal source of instability is not that these unwritten rules can be destroyed by politicians who deny their legitimacy, their validity, or their value. Rather, the principal source of instability is that constitutional norms can be decomposed—dynamically interpreted and applied in ways that are held out as compliant but end up limiting their capacity to constrain the conduct of government officials. This Article calls attention to that latent instability and, in so doing, begins to taxonomize and theorize the structure of constitutional norm change. We explore some of the different modes in which unwritten norms break down in our constitutional system and the different dangers and opportunities associated with each. Moreover, we argue that under certain plausible ...

REVISION: Staying Faithful to the Standards of Proof

By Kevin M. Clermont

Academics have never quite understood the standards of proof or, indeed, much about the theory of proof. Their formulations beget probabilistic musings, which beget all sorts of paradoxes, which in turn beget radical reconceptions and proposals for reform. The theoretical radicals argue that the law needs some basic reconception such as recognizing the aim of legal proof as not at all a search for truth but rather the production of an acceptable result, or that the law needs some shattering reform such as greatly heightening the standard of proof on each part of the case to ensure a more-likely-than-not overall result. This Article refutes all those baroque re-readings. It shows that the standards of proof, properly understood on the law’s own terms without a probabilistic overlay, work just fine. The law tells fact finders to compare their degree of belief in the alleged fact to their degree of contradictory disbelief. Following that instruction resolves mathematically the ...

New: National Injunctions and Preclusion

By Zachary D. Clopton

Critics of national injunctions are lining up. Attorney General Jeff Sessions labeled these injunctions “absurd” and “simply unsustainable.” Justice Clarence Thomas called them “legally and historically dubious,” while Justice Neil Gorsuch mockingly referred to them as “cosmic injunctions.” Scholars in leading law reviews have called for their demise. Critics argue that national injunctions encourage forum shopping, unfairly burden the federal government, and depart from the history of equity. They also claim that national injunctions contradict the Supreme Court’s decision in United States v. Mendoza to exempt the federal government from offensive nonmutual issue preclusion—a doctrine that permits nonparties to benefit from a prior finding against a party from an earlier case.

Critics are right to identify the connection between national injunctions and nonmutual preclusion. Both of these doctrines describe when judgments can benefit nonparties. But critics are wrong to see ...

REVISION: The Conviction of Andrea Yates: A Narrative of Denial

By Sherry F. Colb

This paper discusses the case of Andrea Yates, the woman who confessed to drowning her five children to death and was subsequently convicted of murder, (though the conviction has since been overturned). In this piece, Colb contends that Andrea Yates was convicted because of the jurors’ emotional/psychological response to the possibility that postpartum psychosis could cause an otherwise decent person to commit such brutal acts. As a symptom of denial, Colb argues, the jury rejected the insanity defense and thereby reassured itself that only evil people could do what Yates did. If that were the case, then it would be fine to continue to ignore the issue of mental illness in general and its impact on postpartum women in particular.

REVISION: Affirmative Power to Strip State Courts of Jurisdiction

By Michael C. Dorf

The very substantial literature on the scope of congressional power to strip courts of jurisdiction contains a gap: it does not discuss the source of the affirmative power of Congress to strip state courts of their jurisdiction. Laws granting exclusive federal court jurisdiction over some category of cases are necessary and proper to the exercise of the power to ordain and establish lower federal courts, but what power does Congress exercise when it strips both state and federal courts of jurisdiction? The answer depends on the nature of the case. In stripping all courts of the power to hear federal statutory claims and challenges to federal statutes, Congress exercises whatever affirmative power authorizes the substantive statute. However, Congress lacks affirmative power to strip all courts of the power to hear constitutional challenges to state laws. That conclusion is important in its own right but also complements views — such as Henry Hart’s contention that the Supreme Court ...

REVISION: Introduction: The Place of Agencies in Polarized Government

By Cynthia R. Farina

This is one of two complementary essays for a symposium honoring the work of Peter L. Strauss. Also included is the joint introduction. (The second essay is Gillian Metzger, Agencies, Polarization, and the States.) These essays engage one of Strauss’s most germinal writings, “The Place of Agencies in Government: Separation of Powers and the Fourth Branch” to consider whether contemporary polarized politics spells the end of the intricate system of multi-branch control and accountability which, Strauss argued, legitimates administrative agencies. Political polarization has become a major focus in contemporary discussions on congressional activity and governance. The tone of these discussions has grown increasingly grim, as many political scientists, argue that a constitutional system of divided and shared powers hardens current levels of partisan warfare into legislative gridlock. Proposals for reform abound. Scholars and political commentators have called for modifications to the ...

REVISION: Agency and Insanity

By Stephen P. Garvey

This Article offers an unorthodox theory of insanity. According to the traditional theory, insanity is a cognitive or volitional incapacity arising from a mental disease or defect. As an alternative to the traditional theory, some commentators have proposed that insanity is an especially debilitating form of irrationality. Each of these theories faces fair-minded objections. In contrast to these theories, this Article proposes that a person is insane if and because he lacks a sense of agency. The theory of insanity it defends might therefore be called the lost-agency theory. According to the lost-agency theory, a person lacks a sense of agency when he experiences his mind and body moving but doesn’t experience himself as the author or agent of those movements. The title character in the movie Dr. Strangelove suffered from what’s known as alien hand syndrome. People suffering from this syndrome experience the moving hand as their hand but don’t experience themselves as the author or ...

New: From Meaning to Money: Translating Injury Into Dollars

By Valerie Hans

Legal systems often require the translation of qualitative assessments into quantitative judgments, yet the qualitative-to-quantitative conversion is a challenging, understudied process. We conducted an experimental test of predictions from a new theory of juror damage award decision making, examining how 154 lay people engaged in the translation process in recommending money damages for pain and suffering in a personal injury tort case. The experiment varied the presence, size, and meaningfulness of an anchor number to determine how these factors influenced monetary award judgments, perceived difficulty, and subjective meaningfulness of awards. As predicted, variability in awards was high, with awards participants considered to be “medium” (rather than “low” or “high”) having the most dispersion. The gist of awards as low, medium, or high fully mediated the relationship between perceived pain/suffering and award amount. Moreover, controlling for participants’ perceptions of ...

New: Areeda-Turner 'Down Under': Predatory Pricing in Australia Before and after Boral

By George A. Hay

In the only predatory pricing case in Australia to reach the High Court, the ideas and recommendations contained in the 1975 Harvard law Review article by Phillip Areeda and Donald Turner were at the heart of the case. That case, the Boral case, decided by the High Court in 2003, raised a number of interesting issues regarding whether and how the test proposed by Areeda and Turner should be employed to deal with price cuts by large firms aimed at competitors. Equally importantly, the case raised some fundamental questions about whether there was a serious “gap” in the Australian equivalent of Section 2 of the Sherman Act - Section 46 of the Competition and Consumer Act 2010, formerly the Trade Practices Act 1974 (TPA) - which made it difficult to challenge predatory conduct. Boral led immediately to some radical changes in the TPA but, even today, more than 10 years after Boral, Australians are still struggling to come up with the right statutory framework to deal with predatory ...

REVISION: 2017 Monsanto Lecture: The Complicated Business of State Supreme Court Elections: An Empirical Perspective

By Michael Heise

Proponents of judicial elections and related campaign activities emphasize existing First Amendment jurisprudence as well as similarities linking publicly elected state judges and other publicly-elected state officials. Opponents focus on judicial campaign contributions’ corrosive effects, including their potential to unduly influence judicial outcomes. Using a comprehensive data set of 2,345 business-related cases decided by state supreme courts across all fifty states between 2010–12, judicial election critics, including Professor Joanna Shepherd, emphasize the potential for bias and find that campaign contributions from business sources to state supreme court judicial candidates corresponded with candidates’ pro-business votes as justices. While Shepherd’s main findings generally replicate, additional (and alternative) analyses introduce new findings that raise complicating wrinkles for Shepherd’s strong normative claims. Findings from this study illustrate that efforts to ...

REVISION: Consumer Internet Standard Form Contracts in India: A Proposal

By Robert A. Hillman

India has experienced a dramatic increase in consumer Internet shopping due to its convenience and the myriad choices of the Internet. Further, India enjoys a rapidly developing economy, rising living standards, and improving middle-class income, all of which promote Internet shopping. However, worldwide, few consumers read their e-standard forms and India is likely no exception. In addition, the legal framework in India is inadequate to police vendor opportunism in the form of drafting unfair e-standard terms. Because consumer confidence is a prerequisite to growing Internet commerce, a more comprehensive and direct solution would be beneficial to India’s economy Consumer Internet Standard Form Contracts in India: A Proposal first examines existing strategies to protect consumers and concludes they may be inadequate. The article argues that the most promising approach to consumer protection comes from the American Law Institute’s (ALI) Principles of the Law of Software Contracts. ...

New: Money's Past is Fintech's Future: Wildcat Crypto, the Digital Dollar, and Citizen Central Banking

By Robert Hockett & Saule Omarova

I argue that crypto-currencies will soon go the way of the ‘wildcat’ banknotes of the mid-19th century. As central banks worldwide upgrade their payments systems, the Fed will begin issuing a ‘digital dollar’ that leaves no licit function for what I call ‘wildcat crypto.’ But the imminent change heralds far more than a shakeout in ‘fintech.’ It will also make possible a new era of what I call ‘Citizen Central Banking.’ The Fed will administer a national system of what I call ‘Citizen Accounts.’ This will not only end the problem of the ‘unbanked,’ it also will simplify monetary policy. Instead of working through private bank ‘middlemen’ that it hopes will lend QE money to borrowers during a downturn, the Fed will be able to do ‘helicopter drops’ directly into Fed Citizen Accounts. And rather than rely solely on interbank lending rate hikes or countercyclical capital buffering during periods of froth, the Fed will be able to impound money through the more ‘carrot-like’ measure of ...

REVISION: When Empathy Bites Back: Cautionary Tales from Neuroscience for Capital Sentencing

By Sheri Lynn Johnson

Empathy lies at the core of the capital trial. If jurors come to see the defendant as “different,” “other,” or not “fully human,” they are more likely to determine that the defendant “deserves” the ultimate punishment, making what the Supreme Court has described as essentially a moral judgment about the value of the life of the accused. Conversely, if jurors can identify with the defendant, imagine his “walk in life,” or “see the world through his eyes,” they are less likely to choose the death penalty. Despite its importance and decades of research, empathy is not clearly understood, and its implications for capital trials are largely unexplored. This Article examines the implications of emerging neuroscientific findings regarding empathy for capital trials. We consider implications for jury selection, the presentation of evidence, and arguments by counsel. We conclude that the neuroscience findings we have summarized provide additional support for our prior conviction: It is not ...

New: The Supreme Court of India: An Empirical Overview

By Sital Kalantry

The Indian Supreme Court has been called “the most powerful court in the world” for its wide jurisdiction, its expansive understanding of its own powers, and the billion plus people under its authority. Yet no up-to-date, empirical account exists of who is being heard by the Court, for what purposes, and with what levels of success. Both due to its fragmented bench structure (where cases are usually decided by only two or three out of thirty-one judges) as well as the large volume of cases (nearly 1000 merits judgments per year), scholars and policy makers have a very uneven picture of the court’s functioning: deep knowledge about the more visible, “high-profile” cases, and near-absolute silence about more mundane, but potentially equally important, decisions. This paper aims to fill this gap with a rigorous, empirical account of the functioning of the Court. We have collected, hand-coded, and analyzed data on over 5000 Indian Supreme Court opinions rendered from 2010 to 2015. This ...

REVISION: Law in Hiding: Market Principles in the Global Legal Order

By Odette Lienau

Standing in the background of the global legal order are a range of what might be called “market principles” or “market givens”-collective presentations or beliefs about how markets work-which are treated as objective descriptions at a particular time and place. This Article argues that such market givens should be understood as a kind of “law in hiding,” shaping the policy space available to states and other actors and affecting global legal developments in important but unrecognized ways. Drawing on examples from global financial law, rules on capital mobility, and sovereign debt practices, I demonstrate how market principles can provide the real substantive content for conventionally recognized law, effectively counter official law, and act as powerful rules in the absence of clear legal standards. I further consider why “law” is a suitable categorization for these market principles, adopting a broad definition that derives from and pushes forward recent international legal ...

REVISION: Chapter 1: Reasonable Royalties

By Oskar Liivak

This chapter:

(1) describes the current state of, and normative basis for, the law of reasonable royalties among the leading jurisdictions for patent infringement litigation, as well as the principal arguments for and against various practices relating to the calculation of reasonable royalties; and

(2) for each of the major issues discussed, provides one or more recommendations.

The chapter’s principal recommendation is that, when applying a “bottom-up” approach to estimating reasonable royalties, courts should replace the Georgia-Pacific factors (and analogous factors used outside the United States) with a smaller list of considerations, specifically:

(1) calculating the incremental value of the invention and dividing it appropriately between the parties;

(2) assessing market evidence, such as comparable licenses; and (3) where feasible and cost-justified, using each of these first two considerations as a “check” on the accuracy of the other.

REVISION: Election Interference: The Real Harm and The Only Solution

By Jens David Ohlin

Although politicians and intelligence analysts have criticized Russian interference in the 2016 and 2018 elections, international lawyers seem to be at a loss for how to understand the particular harm posed by this interference. In addition to the hacking of email accounts and disclosure of private information, the most salient aspect of the interference was the use of social media platforms, including Twitter and Facebook, to sow division and heighten nativist tendencies within the electorate. Strictly speaking, the goal of the 2016 interference was to delegitimize a potential Clinton presidency or to help elect Donald Trump as president. But far more important was the method used to accomplish these goals: the impersonation of American citizens during participation in the political process. This latter development points to the real harm of election interference, which has less to do with sovereignty and more to do with the collective right of self-determination. Foreign ...

REVISION: Private Wealth and Public Goods: A Case for a National Investment Authority

By Robert C. Hockett & Saule T. Omarova

Much American electoral and policy debate now centers on how best to reignite the nation’s economic dynamism and rebuild its competitive strength. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality--a National Investment Authority (“NIA”)--charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States.Patterned in part after the New Deal-era Reconstruction Finance Corporation, in part after modern sovereign wealth funds, and in part after private equity and venture capital firms, the NIA is an inherently hybrid, public-private entity that combines the unique strengths of public instrumentalities--their vast scale, lengthy investment horizons, and explicit backing by the public’s full faith and credit--with the micro-informational advantages of ...

REVISION: Land Use Regulation (Second Edition)

By Eduardo M. Peñalver

This casebook offers a concise, user-friendly presentation of land use law which incorporates a focus on critical thinking and practice throughout. The casebook devotes an entire chapter to complex and realistic scenarios that provide students an opportunity to bring to bear what they have learned throughout the semester to solve challenging legal and strategic problems. New materials in the second edition ensure that students will become familiar with the latest trends in land use law. Attached is the table of contents.

REVISION: The Politics of Legal Empirics: Do Political Attitudes Predict the Results of Empirical Legal Scholarship?

By Jeffrey J. Rachlinski

Empirical legal scholarship has emerged as a dominant trend in legal scholarship. At its best, empirical scholarship subjects assertions about the effect of legal rules to a neutral test. But is empirical inquiry truly neutral? The validity of an empirical study should rest on the reliability of the methods used, rather than the political implications of its conclusions. Scholars might choose targets of inquiry, sources of data, or methods of analysis that support their political allegiances. This paper tests this thesis by matching the political beliefs of authors of empirical legal scholarship with the results of their research. The political allegiances of authors mildly correlate with the results of empirical inquiry in legal scholarship.

REVISION: Constitutionalism and the Foundations of the Security State

By Aziz F. Rana

Scholars often argue that the culture of American constitutionalism provides an important constraint on aggressive national security practices. This article challenges the conventional account by highlighting instead how modern constitutional reverence emerged in tandem with the national security state, functioning critically to reinforce and legitimate government power rather than simply to place limits on it. This unacknowledged security origin of today’s constitutional climate speaks to a profound ambiguity in the type of public culture ultimately promoted by the Constitution. Scholars are clearly right to note that constitutional loyalty has created political space for arguments more respectful of civil rights and civil liberties, making the very worst excesses of the past less likely. But at the same time, public discussion around protecting the Constitution – and with it a distinctively American way of life – has also served as a key justification for strengthening the ...

New: Megafirms

By Stewart J. Schwab

This Article documents and explains the amazing growth of the largest firms in law, accounting, and investment banking. Scholars to date have used various supply-side theories to explain this growth, and have generally examined only one industry at a time. This Article emphasizes a demand-side explanation of firm growth and shows how the explanation is similar for firms in all "project" industries. Legal regulation also plays an important role in determining industry structure. Among the areas covered in this Article are the growth of Multidisciplinary Practice firms (MDPs). MDP growth can best be understood by looking more broadly at the demand forces driving project industries. This Article also applies its framework to the breakup of the Big Five accounting firms, to the consolidation trend in the investment banking industry, and to the divergent growth patterns of the law firms in the plaintiffs' securities litigation field.

New: Expanding the Reach of the Commodity Exchange Act's Antitrust Considerations

By Gregory Scopino

In recent years, a small group of financial institutions have paid billions of dollars to settle civil and criminal claims that they formed cartels to rig the prices of certain critically important financial instruments and to stifle competition in others. For example, bankers would rig global benchmark interest rates for the purposes of benefitting their trading positions in over-the-counter (OTC) interest-rate swaps, which are bets on future interest rate movements. By conspiring with horizontal competitors to fix the benchmarks that were components of the prices of financial instruments, financial institutions and their employees harmed competition by warping the normal market factors that governed the prices of those instruments. The U.S. regulator for these markets, the Commodity Futures Trading Commission (CFTC), has broad authority to combat fraud and market manipulation, but it is not feasible to place all relevant forms of misconduct into one of those two categories. ...

REVISION: The Rationality of Promising

By Emily L. Sherwin

This essay first examines various conceptions of promissory obligation, which suggest a range of possible benefits associated with promising. Theories of temporally extended practical rationality suggest that to obtain benefits of this kind, it may be rational for a promisor to treat his or her promise as binding. The difficulty is that, whatever practical and normative benefits binding promises may have, it will not always be epistemically rational for the promisor to perform. Thus, to the extent that markets rely on binding promises, they rely on an element of irrationality in human decision-making.

REVISION: Corporate Governance as Privately-Ordered Public Policy: A Proposal

By Lynn Stout & Sergio Gramitto

In this Article, we show how our society can use corporate governance shifts to address, if not entirely resolve, a number of currently pressing social and economic problems. These problems include: rising income inequality; demographic disparities in wealth and equity ownership; increasing poverty and income insecurity; a need for greater innovation and investment in solving problems like disease and climate change; the “externalization” of many costs of corporate activity onto third parties such as customers, employees, creditors, and the broader society; the corrosive influence of corporate money in politics; and discontent and loss of trust in the capitalist system among a large and growing segment of the population.We demonstrate how, to a very significant extent, these problems can be traced to the way shares in business corporations are currently owned, traded, and voted. We also offer a plausible plan for shifting the structure of share ownership, trading, and voting to ...

REVISION: Transnational Migration, Globalization, and Governance: Reflections on the Central America – United States Immigration Crisis

By Chantal Thomas

The Central America - U.S. border crisis has stoked the fires of a roaring debate on immigration and immigration reform. At a time when real economic growth in the global North continues to stagnate, and income inequality continues to intensify, conditions favor a certain kind of xenophobia that scapegoats immigrants for socioeconomic ills. Under such understandings, immigration influxes are portrayed as exogenous phenomena, but, in fact, migration from the global South to the global North often operates in a kind of boomerang effect. Current asylum and immigration patterns often reflect reactions to previous political and economic interventions by the global North in the home territories of the migrant populations. This article considers these background dynamics in relation to the immigration and asylum surge from Central America, and reflects on the interrelationship and utility of existing paradigms of migration law. A central finding criticizes the narrow understanding of ...

New: An Evolving Foreclosure Landscape: The Ibanez Case and Beyond

By Laura Underkuffler

Mortgage securitization, subprime lending, a persistently weak housing market, and an explosion of residential mortgage defaults – today’s homeowners and banks face a new and challenging landscape. Recently, courts in several states have issued decisions that alter the terrain for mortgage foreclosures. In Massachusetts, New Jersey, and New York, among other states, courts have dismissed foreclosure actions on the basis of what might seem to be highly technical deficiencies in the pleading or proof. The most well-known–and controversial–in this cluster of cases is U.S. Bank National Ass’n v. Ibanez, decided by the Supreme Judicial Court of Massachusetts this year. In Ibanez, the court held that two assignee banks failed to obtain legal title to foreclosed properties because they failed to prove that they held valid assignments of the foreclosed mortgages at the moment that the foreclosure proceedings were begun.

REVISION: Autonomy Isn’t Everything: Some Cautionary Notes on McCoy v. Louisiana

By W. Bradley Wendel

The Supreme Court’s May 2018 decision in McCoy v. Louisiana has been hailed as a decisive statement of the priority of the value of a criminal defendant’s autonomy over the fairness and reliability interests that also inform both the Sixth Amendment and the ethical obligations of defense counsel. It also appears to be a victory for the vision of client-centered representation and the humanistic value of the inherent dignity of the accused. However the decision is susceptible to being read too broadly in ways that harm certain categories of defendants. This paper offers a couple of cautionary notes, in response to McCoy, regarding the ethical obligations of defense counsel. The most important caution is that, as a matter of constitutional law and professional ethics, the preference for autonomy and the standard allocation of decision making authority presupposes a fully competent client, not a client who merely passes the extremely low constitutional bar of competency to stand trial. ...

REVISION: The Nonprime Mortgage Crisis and Positive Feedback Lending

By Charles K. Whitehead

The “great recession” of 2007–2009 was sparked by a bubble in U.S. housing prices, driven in turn by a bubble in nonprime mortgage lending. We collect evidence that the risk of a nonprime housing bubble (not the certainty, but a meaningful risk) should have been obvious to the main participants in the markets for nonprime lending and related mortgage-backed securities (nonprime MBS), including originators, securitizers, rating agencies, money managers, and institutional investors. Those who did not see the risk were, in many cases, willfully blind. We also discuss the strong positive feedback nature of typical nonprime mortgages. This positive feedback made it highly likely that, if nonprime housing prices flattened, let alone fell, they would soon crash and take many nonprime MBS with them. We discuss regulatory responses that might limit positive feedback lending, cause the next bubble to be smaller and less likely, and make the post-bubble aftermath less painful.